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Trading Blog Monday (night), March 31, 2014

3/31/2014

MARKETS UPDATE (11:33 pm EST)

We are about to begin the month of April. Based on cycle and timing factors, this month has the potential to be very volatile for all markets, especially the broad stock market, as there are several timing zones with a high probability for significant market reversals. We are not in an easy trading environment at the moment and, unfortunately, this may continue for at least several more months (possibly through the end of the year). I realize that I am "on the sidelines" quite frequently now, but the dangers in the markets now warrants this. To quote Mark Twain: "I'm more interested in the return of my money than the return on my money". That said, the potential for significant market moves (up and down) during this volatile period will likely present short-term opportunities for profitable trades which I will try to identify and take advantage of (cautiously).

The broad stock market is still giving mixed directional momentum signals, but cycles are suggesting the possibility of a significant correction down within the next two or three weeks. New Fed Chairwoman Janet Yellen talked up the stock market today in a speech lamenting the poor health of the economy and labor market and suggested that Fed intervention would continue to be required "for some time". The dovish tone of this speech kicked the DOW up 134 points today, but the effect may not last long as Wednesday is the mid-point of a strong reversal zone. A rise of the DOW into mid-week without exceeding the all-time high of 16,588 may set up a good shorting opportunity (short-term). Still on the sidelines.

Gold and silver prices may be finding at least temporary support at $1280 (gold) and $19.50 (silver), but directional momentum is still mixed (bullish and bearish) in this market and it is really not safe to take a long position in either metal just yet. If prices stay low into the end of this week, a rally may follow, but if gold and silver rise into Thursday/Friday the market may be setting up for another downturn towards lower prices. I may consider a short-term trade by the end of the week based on which scenario unfolds. On the sidelines for now.

Trading Blog Friday (night), March 28, 2014

3/28/2014

MARKETS UPDATE (10:30 pm EST)

There has been little change in the condition of the financial markets since my last blog on Monday and I am therefore remaining on the sidelines of the broad stock market, crude oil, and the precious metals for now.

The DOW stayed mostly between 16,200 and 16,400 this week and remains indecisive in its directional trend (with mixed bullish and bearish momentum indicators). A brief surge to 16,466 on Wednesday was followed by a strong down day on Thursday, so it appears this market does not want to make a new high just yet. The S&P 500 charts continue to show strong bullish momentum while the NASDAQ and DOW remain mixed. All of these mixed signals are keeping me out of the broad stock market for now.

Gold and silver fell strongly this week with gold now approaching a support level around $1280 and silver pausing today at a $19.50 support area. It is too early to tell if these are significant bottoms, especially since the short-term cycles are suggesting a longer (short-term) correction in gold and silver. Directional momentum remains mixed bullish and bearish in both metals as well as in the precious metal mining company stock indices HUI and XAU. I am staying on the sidelines here as the correction may not be over. As I mentioned in Monday's blog, this bearish drop is most likely a short-term correction. The overall long-term bullish picture for gold and silver remains intact and I am still looking to go long in both metals once this correction has bottomed.

Interestingly, the U.S. Dollar Index appears to be holding above 80 after breaking through that level two weeks ago when Federal Reserve chairwoman Janet Yellen suggested a specific time for the raising of short-term interest rates (early 2015). Momentum is now mixed bullish and bearish in this index. It is too early to tell if the dollar is actually breaking into a new uptrend; however, there are some technical patterns in the chart of the dollar suggesting that this new rally will not get very far before turning down again. We will keep a close eye on this as precious metals tend to move opposite the dollar, and a resumption of the dollar's downtrend could signal a bullish reversal in gold and silver.

Crude oil prices rose Thursday and today, supposedly based on positive U.S. economic data and increasing tensions in Ukraine. Just a few days ago a U.S. congressional hearing was considering the selling of some of America's emergency oil reserves to depress the price of oil as punishment to Putin for taking over Crimea (oil sales being a major component of the Russian economy). If the U.S. follows through with this it could send crude prices back down. As with the broad stock market, the technical picture for crude oil is a little confusing at the moment so I am remaining on the sidelines.

Trading Blog Monday, March 24, 2014

3/24/2014

MARKETS UPDATE (5:45 pm EST)

Many market analysts that I follow are currently experiencing considerable frustration in their trading as most of the major financial markets have become nervous, indecisive and volatile over the last several weeks. This situation is undoubtedly being fueled by the increasing tension between Russia and Ukraine (and the Western nations supporting Ukraine) in a crisis that could easily escalate and lead to major geopolitical instability. In addition to this, Janet Yellen's comments last week suggesting a specific time to begin raising short-term interest rates (early 2015) just added more fear to the already jittery financial markets. Needless to say, it is difficult to call the markets in this kind of environment as technical and cycle parameters can become distorted and market moves can be quick and elusive. Even though I am not a day trader, some short-term trading is necessary under these market conditions, at least until longer term directional patterns become more clear.

The DOW has been bouncing between 16,200 and 16,400 over the last several days and seems indecisive as to whether or not it wants to break to a new all-time high or instead take a bigger correction. Another strong bearish signal appeared today in some NASDAQ charts, so directional momentum continues to be mixed in the NASDAQ and DOW (the S&P 500 is at the moment mostly bullish). This ambiguity continues to keep me on the sidelines of the broad stock market; however, if the DOW rallies into the end of the week without breaking too far above 16,500, it may present a good opportunity to sell short for a significant short-term profit. On the sidelines for now.

My recent reluctance to go long in precious metals has proven to be a wise decision as this market appears to be turning short-term bearish. Today's gold prices broke significantly below last week's low of $1320 and was accompanied by a strong bearish momentum signal. Technically this suggests more downside in prices for at least several more weeks. Significantly, strong bearish momentum signals are now also appearing in the two major gold and silver mining company stock indices HUI and XAU. Gold and silver mining company stocks often lead the prices of the metals themselves. Directional momentum in gold and silver metal and precious metal stocks is now mixed bullish and bearish. Does this mean that the longer term bull market in precious metals is aborting? No !
It may mean that the long-term cycle bottoms in gold and/or silver are not yet in. Even though there are strong technical and cycle studies suggesting that the $1183 (spot price) low of June, 2013 was the long-term cycle bottom in gold, this hasn't been confirmed yet, and it is still possible for that low to be be taken out. I do feel, however, that there is a good chance that it will hold and that this current correction will give us another good opportunity to go long near the cycle bottom. We are just going to have to wait and see how low this correction can go now in both gold and silver. A good sign of a bottom will be when both gold and silver's directional momentum turns strongly bullish again. Before that happens we may see some short-term opportunities to sell short, but my primary focus is still to go long near the long-term cycle bottom in gold somewhere between $1000 and $1300. It seems we are now going to have to wait a bit longer to do so, but it will most likely be before the summer begins here in the U.S. On the sidelines of gold and silver.

Relevant to precious metal prices is the recent behavior of the U.S. Dollar Index. From early February to mid-March the dollar appeared to be breaking down, falling steadily with its directional momentum reading nearly 100% bearish for over four weeks. Over the last two weeks, however, this index has found support in the 79.5 area, and following last week's Federal Reserve meeting and Janet Yellen's speech, the dollar shot up dramatically (some say that this was the Fed's intention). Of course, this sudden dollar surge is having the effect of pushing down gold and silver prices. How long will it last? The chart of the U.S. Dollar index flashed a strong bullish momentum signal today which makes its directional momentum now mixed bullish and bearish. In other words, we may be seeing the start of a dollar recovery here, although it is much too early to confirm this. While further rallying in the dollar could send precious metal prices lower, I would like to point out that the dollar and gold/silver do not always move in opposite directions (even though they frequently do). Under certain market conditions both the dollar and precious metal prices can rise together. This should kept in mind as a strong dollar doesn't necessarily spell doom for gold and silver.

Mixed technical signals have also been keeping me on the sidelines of the crude oil market. The recent mid-March correction in crude prices found support just above the $97 area. As I suggested in my last blog, if prices can fall lower over the next week or two, say to the $94 -$95 area, I may consider establishing a long position. Still on the sidelines of this market.

Trading Blog Wednesday (night), March 19, 2014

3/19/2014

MARKETS UPDATE (11:30 pm EST)

The FOMC meeting that took place Tuesday and today was the first one led by new Federal Reserve chairwoman Janet Yellen. Most analysts were expecting the Fed to continue its tapering of bond buying (QE) and to maintain the near zero interest rate policy that has been helping to keep equity markets buoyant despite the taper. (Many traders and investors may recall how until recently the mere mention of QE tapering was enough to send the stock market into a short-term dive. The main reason that equity markets have been dealing so well with the final arrival of a taper at the start of this year has been the Fed's pledge to keep interest rates low.) Markets were stable early in the day and were not fazed much by the text of the FOMC meeting released at 2:00 in the afternoon as it mostly delivered what they were expecting: a continued reduction in bond purchasing and the keeping of interest rates low for an indefinite length of time. The Fed also shifted and redefined their criteria for the hiking of interest rates and gave themselves more flexibility in determining when this should be done in the future. That future seemed to be some distance away as the final paragraphs of the FOMC meeting text stated:

"...even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run. "

But then Janet Yellen spoke at a press conference after the meeting and suggested that the Fed could raise interest rates around six months after the bond-buying program ends (which could mean a rate hike in early 2015). The market clearly did not like this comment and the DOW immediately plunged and closed the day with a 114 point loss. Several analysts have pointed out that many investors may have misinterpreted her statement to mean six months from now and reacted with nervous selling. We will have to wait and see over the next two days how strong an impact Yellen's statements will have on the markets.

From a technical analysis standpoint, the DOW is now back below the 16,300 area of resistance that I mentioned in my last blog. If the market remains spooked, that resistance may hold and we could see a further downside in equities, perhaps to the 15,800 area in the DOW. Another bearish factor weighing on the broad stock market now is the increasing tension between Russia and the West over Russia's bold takeover of Crimea. Equity markets generally do not like major geopolitical instability, and there is a great deal of uncertainty right now as to how the West will react if Putin continues to step over the "lines drawn in the sand" by the U.S. and other countries. Directional momentum is still somewhat ambiguous in the major market indices (DOW, S&P 500, NASDAQ) so I am remaining on the sidelines for now.

My suspicion of further downside in the precious metals was confirmed today as both gold and silver prices dropped significantly (especially gold). Ms.Yellen's comments today conveyed (perhaps inadvertently) a somewhat hawkish fiscal tone that seemed to give a boost to the U.S. Dollar but was detrimental to the precious metals. This reaction, of course, may just be short-term and could now bring the price of gold and silver into ideal buying territory. Both of these metals could find a bottom tomorrow or Friday so we need to be alert now for any trading signals to go long. Still on the sidelines and waiting to buy.

I am still standing aside the crude oil market as the directional trend is a little unclear at the moment and the increasing geopolitical tension from the Ukraine crisis could make this market volatile and unpredictable. I am starting to think that the recent correction in this market may not be over and prices could fall lower within the next two weeks, possibly to the $94 - $95 area. If that happens it may be a good spot to buy. Out of this market for now.

Trading Blog Monday, March 17, 2014

3/17/2014

MARKETS UPDATE (3:15 pm EST)

The U.S. stock market is up strongly today as investors seem relieved by mild Western reaction (Visa bans, asset freezes) to Sunday's vote by Crimea to secede from Ukraine. The market is also being buoyed by better than expected manufacturing data. It's a little too early to tell if the DOW has found a bottom yet. An ideal bottom here would be in the 15,700 - 15,900 range and last Friday's low was only to 16,047. There is now some resistance in the 16,300 area, so I want to at least see if the market can break that level before considering a long position. If that resistance does hold, we could see the DOW move back down towards that ideal bottom. Directional momentum may be getting a little more bearish as a strong bearish signal appeared late last week in some NASDAQ contract charts. Currently the DOW and NASDAQ are mixed bullish and bearish, but the S&P 500 remains 100% bullish. Another bearish factor in the broad stock market now is the fact that the DOW has not yet made a new all-time high (above 16,588) while the S&P 500 and NASDAQ have made new highs (intermarket bearish divergence). This factor will be negated once the DOW clears that hurdle at 16,588. This market is very ambiguous at the moment and could break up or down. I am still watching it from the sidelines.

The price of crude oil appears to be stabilizing just above $97. According to cycle studies we are almost at an ideal point to go long in this market for at least a short-term rally, but last week's strong bearish momentum signal now makes the chart for crude mixed bullish and bearish. There are also some political rumors circulating that oil prices may be pushed down now to punish Russia economically for its intervention in Ukraine. The target range for crude's current price correction could go as low as $94, so it is possible we could see that level soon. There is currently support, however, down to $96. Even If that holds and we get a rally now, bearish factors may temper it. I am staying out of this market for now and waiting for the medium-term directional trend to become a little more clear.

Directional momentum in the precious metals remains somewhat mixed. Silver charts are still mixed bullish and bearish while gold charts remain mostly bullish. Some short-term bearish trade signals, however, are appearing in some gold charts today as the spot price dropped to $1369 after topping out at $1392 on Sunday. We may be seeing a brief correction here that could present us with a good opportunity to buy. Technical studies suggest a possible correction into the end of the week, so I am on the alert to buy anytime now. I would like to note here that I think
the recent bearish signals in the silver charts are temporary and will soon be negated as both gold and silver begin a strong new rally. On the sidelines and waiting to go long.

Trading Blog Wednesday, March 12, 2014

3/12/2014

MARKETS UPDATE (2:00 pm EST)

The broad stock market is falling (so far) this week, and I am waiting to see if the DOW will find support at or above last week's low in the 16,000 area, as this could be a good spot to go long. Directional momentum is still mixed bullish and bearish in the DOW but it is 100% bullish in the S&P 500 and NASDAQ charts. Short-term trade signals are somewhat mixed at the moment. On the sidelines here.

Crude oil prices today dropped dramatically down to the $98 area that I had hoped to see, but the steep fall in crude over the last three days has triggered a strong bearish momentum signal, and this market now has a mixed bullish and bearish directional trend. If prices bottom soon and remain above the $97 area I may still go long, however, this change in momentum may put a damper on the rally that would follow. Should prices break clearly below $97 we may have to switch to bearish trading strategies (i.e. selling short any rallies). This market is extremely volatile right now due to the Ukraine crisis so trading must be done with caution.

The precious metals market is giving mixed signals now that also warns us to be cautious in trading. Gold may be bypassing a cycle correction that would normally take prices down to the $1280 level. Its surge up today to $1370 could be the start of a breakout and a strong rally. What bothers me here is the strong bearish momentum signals that have appeared this week in silver charts. If those signals are negated soon, it may be time to go long in both gold and silver, but until then I am remaining cautious. Staying on the sidelines for today.

The U.S. Dollar Index seems to be finding at least temporary support at 79.5. A bounce from this level could still push gold and silver prices back down short-term. On the other hand, if the dollar breaks below this support it would likely drive precious metal prices higher. Directional momentum in the dollar remains strongly bearish, so any rally (bounce) now is likely to be weak and brief.

Trading Blog Monday, March 10, 2014

3/10/2014

MARKETS UPDATE (4:30 pm EST)

We are now past that time period for a likely turning point in all markets and the next one will not be until the end of this month and early April.

In the broad stock market the DOW made a top on Friday that did not exceed its all-time high of 16,588 from Dec. 31 while the S&P 500 and NASDAQ continued to exceed their Dec. 31st highs. Thus this intermarket bearish divergence signal continues in these indices. The DOW is down today so a significant correction may be starting.
There are, however, several technical signals that are now turning bullish and directional momentum remains strongly bullish in the S&P 500 and NASDAQ (it is still mixed bullish and bearish in the DOW). This may be telling us that any correction will be brief and small. In fact, it is possible that last Monday's plunge to 16,071 could have been the correction already. If so, the DOW should soon exceed that 16,588 high and affirm its bullishness. Many investors have been and will be putting a lot of money into retirement accounts through early April (for tax reasons). This is a bullish factor that could be giving buoyancy to the markets right now. The thing to watch now is how the DOW moves this week. If it moves back down towards last Monday's low but does not break below it, this could be a good entry point to go long. Any break above 16,588 would also be a bullish sign and could be a signal to go long. Should the DOW break below the 16,000 area, it would be a bearish sign and would suggest a more severe correction in the market. We will wait and see what happens as the week unfolds. Still on the sidelines.

My feeling of more downside in gold and silver prices is being confirmed by several technical signals today, most significantly by a major bearish momentum signal appearing in the silver charts. Silver prices are approaching our ideal buying area near $20, but gold is still a good distance away from its ideal buy spot near $1280. This market could be volatile this week and may be affected strongly by any growing tensions between Russia and Ukraine. More conflict between these two countries could kick start an explosive rally in precious metals and bypass any normal corrections. Today's bearish change in directional momentum in silver, however, is enough to keep me on the sidelines for another day. On the sidelines and waiting to buy.

Crude oil's dramatic plunge last week to just above $100 on Wednesday and its subsequent rise back towards $103
on Friday was suggestive of a completed correction in this market. It may not be over, though, as prices plummeted again today and closed the day just above $101. Based on cycle studies, I would like to see this correction move closer to $98 before considering a long position. Any move now below $100 would suggest this is happening, but if that $100 level holds, it is possible for crude prices to rally and make a new high before any serious correction. Directional momentum in this market is still strongly bullish and as long as it remains so I will continue to wait for a good entry point to go long in crude oil. On the sidelines for now.

Trading Blog Friday, March 7, 2014

3/7/2014

MARKETS UPDATE (3:30 pm EST)

We are now at the end of a timing window for likely reversals in all markets so I will analyze trading strategy with this in mind.

The broad stock market has clearly been rising into this period and I am still expecting it to turn down now, even if briefly, for some sort of correction. The DOW was up strongly this morning but now (late afternoon) it has lost most of that gain. It is significant that even today's new high at 16,505 still has not exceeded the DOW's all-time high of 16,588 on Dec. 31, 2013. The S&P 500 and the NASDAQ indices have already exceeded their Dec. 31 levels, so intermarket bearish divergence between these indices continues and supports the argument for a correction now. Directional momentum, however, currently favors the bulls with the S&P 500 and NASDAQ still nearly 100% bullish (the DOW remains mixed bullish and bearish). This suggests that any correction could be brief and minor and could present a good entry point to go long. As I stated in my last blog, there is a possibility here of the DOW correcting down towards the 15,400 level, so we need to be careful about going long until that danger has passed. Still on the sidelines of this market.

Crude oil prices peaked just above $105 on Monday and fell steeply into Thursday (to $100) and are rising again today. In Tuesday's blog I wrote that, " I am anticipating a peak in crude prices before the end of the week. We may have just seen it with Monday's high..." So we are getting our anticipated correction in a rather volatile fashion (most likely in response to this week's political instability in Ukraine). Is the correction over with that bottom on Thursday? Maybe, but from a technical standpoint I would prefer to see it last a bit longer with prices closer to the $98 level. I am still looking to go long in this market but I am going to wait and see if prices can edge lower into next week. If they don't, and we get a strong short-term buy signal, I will look to buy. On the sidelines and waiting to go long.

I am also waiting for a good entry point to go long in both gold and silver. Both metals are falling from highs on Monday. At the moment silver is looking a bit more bearish than gold, but the charts for both metals are suggesting a little more downside in prices. Ideally I would like to see gold closer to the $1280 area and silver closer to $20 before buying. We may see that next week so be prepared to buy. On the sidelines and waiting to buy soon.

I am watching carefully the U.S. Dollar Index as its directional movements are often opposite that of the precious metals and this may help us pinpoint turning points in gold and silver. Directional momentum in this index has been very bearish, and recently a strong support level at 80 was broken. There is, however, good support down to 79, so a short-term bounce right now is not out of the question. Such a bounce could push gold and silver down a bit further. A further breakdown in the dollar, however, could send precious metal prices soaring, so we will be on the alert for this as well.

Trading Blog Tuesday, March 4, 2014

3/4/2014

MARKETS UPDATE (2:45 pm EST)

The sudden specter of a Russian military threat to Ukraine caused some knee-jerk reactions in several markets yesterday. This is yet another demonstration of just how volatile financial markets are these days, and this is, unfortunately, a situation I feel is going to persist at least through the first half of this year. It is important to keep this in mind as we do not want abrupt market movements triggered by news events to cause us to "jump the gun" with our trading decisions (which I base mostly on technical signals).

The broad stock market closed yesterday with a 153 point loss in the DOW but today this index has recovered all of that, and at the time of this writing (2:30 pm EST) the DOW is up over 200 points. As I stated in my last blog, the turning point for a significant reversal in most major markets should occur before the end of this week. With the market's plunge yesterday it appeared that Friday was a likely peak, but today's healthy bounce may push the market higher over the next few days. The DOW has still not exceeded its all-time high of 16,588 (but it is getting close). The S&P 500 and NASDAQ have already made new yearly highs. Until the DOW exceeds that high, we have a strong bearish signal that is supporting the idea of an imminent correction. This correction could send the DOW back down towards the 15,400 area and give us a good entry point to go long as momentum continues to be generally bullish in the broad stock market. Should the DOW break significantly below the Feb. 5th low at 15,340, however, we could see the market turning bearish and a much more serious correction unfold. Until that happens, I am going to be looking for a modest correction here and an opportunity to go long in the broad stock market shortly. Still on the sidelines.

Gold and silver prices also responded to the Ukraine news and shot up (at least briefly) yesterday. This is not surprising as the threat of any serious global political instability usually encourages a flight from equities into hard assets. Precious metal prices are back down again today, however, and there are some technical signals still suggesting a little more downside in this market before we have an ideal entry point to buy. Significantly, the U.S. Dollar Index is back above the 80 level (after breaking briefly below last week) suggesting at least some short-term strength that could push metal prices a bit lower. I continue to watch this index carefully as its chart momentum is currently very bearish, and a clear breakdown of the dollar now could trigger a gold and silver breakout. On the sidelines of gold and silver and waiting to buy.

Crude oil surged to a new high at $105.22 with yesterday's news, but dropped back towards $103 today. As with the broad stock market, I am anticipating a peak in crude prices before the end of the week. We may have just seen it with Monday's high, but there is still time to make another before Friday. Directional momentum in this market continues to be strongly bullish, so my strategy here is still to wait and go long on any corrections. Out of this market for now.

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